“We were, of course, impacted by the price cuts and we were pushed harder towards regaining the market quota and finding more business,” Miguel Lopes da Cunha says of Fapomed during the economic crisis that shook every sector of the Portuguese economy.
What is your view on the overlap between the pharmaceutical and the medical device areas? Why do you think it exists and what do you believe should be different?
It is logical for this overlap to exist, as we are all focused on offering assistance, working with chemicals, innovating, developing new materials and providing new protection. In the medical device industry we are concerned with keeping the environment of operation theaters safe and trying to avoid the use of chemicals in order to guarantee physical protection. This is the core of our business. We are making efforts to become more efficient as bacteria become more and more efficient as well. This sector is based on research, materials and investments. Innovation is not as expensive as in the pharmaceutical industry. It is important, but it is different and it takes shorter time to be implemented. The primary concern is related to the materials and adaptation to the customers’ needs, as well as understanding the state of development of different markets in different countries.
Fapomed is a founding member of the “Medical Device and Pharmaceutical Group”. What does this group hope to achieve?
It is important for us to join the main actors in this health cluster. Pertaining to this group, we aim to attract attention to and lobby for the healthcare industry in Portugal and to make use of the expertise of each company in order to create synergies of know-how between the medical device and pharmaceutical sectors.
We have recently been in Lisbon, attending the business forum “Medicines and Health Products”, organized by IPDAL, the Institute for the Promotion and Development of Latin America, and for the first time we formed a mixed group of companies to be present in several countries in South America, represented by their ambassadors. This helps to improve communication and economic relations between these regions.
We all know that the crisis affected many companies in the healthcare sector. Was it the case for Fapomed also? Did you have to adapt in any way to the challenging economic environment? What measures did you take?
We were, of course, impacted by the price cuts and we were pushed harder towards regaining the market quota and finding more business. We were exposed to pressures of 15 percent lowering of market prices due to economical situation of Portugal. But we do did not have a 15 percent margin to cut. The medical devices sector is of many different kinds. I believe that there are medical devices with high margins, but in the area of the non-woven medical devices we are facing very fierce competition from Far East, and since there is a strong component of hand labor involved we are at a disadvantage.
We are European. To achieve 15 percent price reductions is a hard goal to reach. On top of that we do not have flexible labor legislation in Portugal. The present legislation, although slightly mitigated, still makes it difficult to create new jobs for young educated people and to readjust the company to the new challenges of the market. Since the very beginning we had a focus on export and this has helped us to survive during these times.
Fapomed now exports to more than 20 countries and at the end of last year we achieved the same sales volume as previous years but with a better return on sales.
Five years ago we engaged in a project to expand activities to Eastern Europe. Eventually, we decided to build up a new manufacturing unit in Ukraine, from where it would be easier to expand in the future. In a way, we anticipated what was going to happen in the market. So, we started by reducing the stocks, shortened the supply chain and became more flexible.
So you opened the new facility in Ukraine as a response to the Chinese threat, according to the local media, is that correct? What advantages has it brought and did it help you to stay competitive in overseas markets?
Even though that statement was fairly exaggerated at that time, our scope was to reduce the risks associated with the crisis and the competitive prices coming from the Asians and not only China. We noticed that we had a good capacity to manufacture and innovate, and we also possessed the right technology in Portugal. We understood that our big multinational customers needed the opportunity and the right solutions to reduce future environmental risks, long supply chains and lack of flexibility. Customers are questioning more and more whether China is a long-term solution or not.
Thus, we decided to keep manufacturing with European quality at a now more adequate price. Another fact worth mentioning is that some of our key success factors are linked to people and their mentality. It might be an attribute that was passed from generation to generation in the past, in that the Portuguese are able to adapt to territory, incorporate the feedback into their philosophy and join forces with locals. Ultimately, it is more satisfying to incorporate the perspective of Ukrainian people and to remake the company’s style.
Do you believe that the manufacturing sector is the new engine of growth in Portugal and that there is a need to re-industrialize the country, as some might believe?
People need to realize that while there are a few good medical device manufacturers in Europe, the number is dwindling. This is one of the reasons behind the plans to re-industrialize Europe. I recently came across a report by the European Commission, which stated that about ten years ago, 40 percent of foreign investment was made in Europe and today it has dropped to half.
We are moving factories to other regions, which has resulted in a lack of jobs and money. We need to refocus on creating more jobs and exports. Portugal has the technology, the people, good universities and the know-how at reasonable costs; but we need to promote ourselves more to put Portugal on the radar. We must also provide jobs to young people; our law is not protecting those without jobs.
We need to readapt companies and take risks. Industry and entrepreneurs in Portugal like to take risks, to push for sales and are able to adapt easily to new territories.
What exactly is your target market? Who are your clients and where are they located? Could you describe your internationalization strategy?
We have recently set foot in Ukraine as it facilitates accessing new regions like Russia and other Eastern European countries. But we also ship to Chile, for example, and we have not reduced our capacity to manufacture in Portugal. We have started to think globally and to take chances. On the other hand, we are in the process of improving our brand image and promoting our own brands. We manufacture in-house more than 50 percent of the contents in our products and simultaneously we have acquired know-how in other relevant components comprised in the whole kits that we produce. So we want to start manufacturing in countries that are willing to make a technological leap forward, where we will start from scratch to develop and design a top product according to their needs. Our potential markets are the PALOP (Portuguese Speaking Countries) and East European countries.
What is the importance of the R&D area for your business? How effective is the relationship between universities and companies for research and innovation?
Working with universities is cost effective. Since the beginning of the company’s operations we have worked together with universities in research activities, sharing of know-how and sharing available testing apparatus, which can be very expensive. Therefore, we looked for as many partnerships as possible. At present, we are involved in several projects in collaboration with universities and research centers, one of which involves new European regulations and designing the requirements of a new “clean air suit”.
What makes Fapomed the partner of choice in this niche market?
Fapomed is a company with experience and know-how, and enjoys a solid reputation among the most important suppliers in the business. Another asset is the proximity and ease of communication with our partners. We are very focused on the needs of customers, and we have the best technology. Multinationals rely upon us for many validation processes, and other specialized and demanding tasks since our technicians and our laboratories are reliable and cost effective.
Looking ahead, what are the main growth drivers of Fapomed for 2014?
Exports will go on playing an important role in Fapomed’s growth. We are looking at Eastern Europe and we hope to boost sales in the North African market, an area where we have been investing for five to six years. Now the conditions in the area are more favorable for us. Another step is to regain and consolidate a bigger share of the Portuguese market. We are also considering finding strategic partnerships with companies that complement our expertise; we are looking for that in Russia, for instance. Medical devices aimed to the new born and pediatric market in countries with a high birth rate are also on our list for strategic developments.
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